Surprising Gifts - Theory and Laboratory Evidence
Kiryl Khalmetski, Axel Ockenfels and Peter Werner
University of Cologne, Working Paper Series in Economics No. 61, 2013
JEL codes: C91, D64
Keywords: guilt aversion, surprise seeking, dictator game, consensus effect
People do not only feel guilt from not living up to others’ expectations (Battigalli and Dufwenberg (2007)), but may also like to exceed them. We propose a model that generalizes the guilt aversion model to capture the possibility of positive surprises when making gifts. A model extension allows decision makers to care about others’ attribution of intentions behind surprises. We test the model in two dictator game experiments. Experiment 1 shows a strong causal effect of recipients’ expectations on dictators’ transfers. Moreover, in line with our model, the correlation between transfers and expectations can be both, positive and negative, obscuring the effect in the aggregate. Experiment 2 shows that dictators care about what recipients know about the intentions behind surprises.
Surprising Gifts - Theory and Laboratory Evidence
Optimal Progressive Taxation and Education Subsidies in a Model of Endogenous Human Capital Formation
Dirk Krueger and Alexander Ludwig
University of Cologne, Working Paper Series in Economics No. 60, 2013
JEL codes: E62, H21, H24
Keywords: progressive taxation, capital taxation, optimal taxation
In this paper we characterize quantitatively the optimal mix of progressive income taxes and education subsidies in a model with endogenous human capital formation, borrowing constraints, income risk and incomplete financial markets. Progressive labor income taxes provide social insurance against idiosyncratic income risk and redistributes after tax income among ex-ante heterogeneous households. In addition to the standard distortions of labor supply progressive taxes also impede the incentives to acquire higher education, generating a non-trivial trade-off for the benevolent utilitarian government. The latter distortion can potentially be mitigated by an education subsidy. We find that the welfare-maximizing social policy is indeed characterized by a substantially progressive labor income tax code and a positive subsidy for college education. Both the degree of tax progressivity and the education subsidy are larger than in the current U.S. status quo.